Retiring with Debt? When It’s a Problem—and When It’s Actually Fine

July 24, 2025

“Can I still retire if I have debt?”

Yes, sometimes.

But not all debt is created equal—and the way it fits into your retirement income plan makes all the difference.

Mortgage Debt: Common, and Often Okay

It’s not unusual for feds to carry a mortgage into retirement, especially if they refinanced at a low rate or bought a home later in their career.

When it’s manageable:

  • Your monthly payment is under 25% of your combined FERS pension + TSP withdrawals

  • You’ve locked in a low interest rate

  • You plan to stay in the home long-term

When it’s risky:

  • You're considering a lump-sum TSP withdrawal just to pay it off

  • Housing costs are limiting your flexibility or pushing you toward high withdrawal rates

  • You may downsize, but haven’t accounted for selling, moving, or buying costs

Tip: Paying off a mortgage can feel emotionally satisfying—but draining TSP too fast may cost more in taxes than it saves in interest.

Car Loans: Less Ideal, But Often Tolerable

A car loan doesn’t have to derail retirement—if it's planned for.

Green light if:

  • The payment fits within your monthly budget

  • The loan ends within 5 years of retirement

  • You’re not relying on credit or savings to cover it

Red flag if:

  • You’re financing new cars frequently, even in retirement

  • You bought a new car as a “reward” without checking long-term cash flow

Tip: Include vehicle replacement in your retirement budget so you’re not caught off guard later.

Student Loans: The Wild Card

Some feds still have Parent PLUS loans or education debt from mid-career degree programs. Others are helping adult children repay theirs.

Reasonable if:

  • Payments are low, predictable, or nearing completion

  • You’ve accounted for them in your post-retirement income plan

  • You’ve explored forgiveness or income-based repayment options

Risky if:

  • You’re diverting TSP funds to cover your child’s loans

  • The debt prevents you from maintaining emergency savings or healthcare costs

Tip: Make sure you're not sacrificing your financial security for a well-meaning goal.

How to Know If You’re Okay to Retire with Debt

Ask yourself:

  • Will my guaranteed income (FERS + Social Security) cover my essential expenses and minimum debt payments?

  • Do I have enough left over for healthcare, inflation, and discretionary spending?

  • Can I avoid large, taxable TSP withdrawals just to eliminate the debt?

If the answer is yes, carrying some debt into retirement may be perfectly reasonable

Being debt-free in retirement is ideal—but being cash-flow positive is essential.

In some cases, holding on to low-interest debt while preserving your TSP may be the smarter long-term move.

—FWR